Mark Stemp, Partner and tax specialist at Crowe U.K. LLP, talks us through essential Stamp Duty Land Tax (SDLT) considerations for residential landlords. Make sure you're up to speed with this handy overview of all the essential SDLT details associated with purchasing rental properties.
By Mark Stemp:
If you’ve decided to purchase a rental property, you now need to consider the Stamp Duty Land Tax implications. The guide below is prepared to help with some of the more common questions regarding SDLT.
Please note that the rules differ where any of the following apply and these scenarios are not considered any further in this guide:
- the property is purchased by a company or other entity
- the property is non-residential or mixed use
- the purchaser is a first-time buyer
Where is the purchase?
Stamp Duty Land Tax (SDLT) is a type of tax that is due when you purchase property in England and Northern Ireland. There are different rates for property purchased in Scotland and Wales which is not considered in this article.
How much SDLT will I pay as a UK resident individual purchasing a buy to let property? If you are resident in the UK for tax purposes, already own your own home, and subsequently purchase a buy to let property you are required to pay a 3% SDLT surcharge. No surcharge will be payable where the buy to let property is the only property you own. This is reflected in the following table:
| Band | UK residents purchasing first property | UK residents with one or more properties already owned |
|---|---|---|
| Up to £250,000 | 0% | 3% |
| £250,001 to £925,000 | 5% | 8% |
| £925,001 to £1,500,00 | 10% | 13% |
| Above £1,500,000 | 12% | 15% |
Examples:
1) A UK buy to let property being purchased for £850,000 where you already own your own home would result in SDLT of £55,500
2) A UK buy to let property being purchased for £850,000 where this is the only property you own would result in SDLT of £30,000.
What is Multiple Dwellings Relief (MDR)?
When purchasing more than one ‘dwelling’ as part of a single transaction, or multiple linked transactions, a relief is sometimes available to reduce the SDLT due.
Further considerations:
1. A purchase of multiple dwellings is subject to slightly different rules with regard to the 3% SDLT surcharge, and the position might therefore need some careful consideration.
2. There will be a claw back of MDR if alterations are made within 3 years whereby the properties cease to be dwellings or the number of dwellings is reduced. MDR is not available where a dwelling is acquired under a long lease, i.e. a lease of more than 21 years.
3. Where more than six dwellings are purchased in a single transaction, then the transaction will automatically be treated as a non-residential transaction. You can still however make a claim for multiple dwellings relief is this proves to be more beneficial.
4. MDR is currently under consultation with HMRC and is likely to change soon.
Example: £2m purchase with 2 dwellings:
Normal calculation
| Band | Consideration | Rate % | SDLT |
|---|---|---|---|
| Up to £250,000 | £250,000 | 3 | £7,500 |
| £250,001 to £925,000 | £675,000 | 8 | £54,000 |
| £925,001 to £1,500,00 | £575,000 | 13 | £74,750 |
| Above £1,500,000 | £500,000 | 15 | £75,000 |
| £2,000,000 | £211,250 |
Multiple Dwellings Relief calculation
| Band | Consideration | Rate % | SDLT |
|---|---|---|---|
| Up to £250,000 | £250,000 | 3 | £7,500 |
| £250,001 to £925,000 | £675,000 | 8 | £54,000 |
| £925,001 to £1,000,00 | £75,000 | 13 | £9,750 |
| £1,000,000 | £71,250 | ||
| Multiplied by 2 | |||
| (£2,000,000) | £142,500 |
How much SDLT will I pay if I am a non-UK resident?
The rates of SDLT payable are 2% higher for non-UK residents. However, SDLT has its own definition of residence so this may not be consistent with your tax residence for other taxes. The rules can be complex but individuals will be considered UK resident provided they are in the UK for 183 days in any 365 day period between 365-day prior to the purchase and 364 days after the purchase.
Example: a UK buy to let property being purchased for £850,000 by a non-UK resident would result in SDLT of £72,500 (assumes the 3% surcharge also applies).
What if I purchase property via a company?
It is important to ensure that your rental business is held in the correct structure and with this in mind taxpayers will often explore the possibility of purchasing rental properties within a corporate structure.
Whilst corporate purchases are normally subject to the 3% higher rates surcharge, and the 2% surcharge where the purchase is made by a non-UK resident company, they can also be subject to a penal 15% flat rate on property costing more than £500,000 unless the company is either acting as trustee of a settlement or the property is to be used for:
- a property rental business
- property developers and trader
- property made available to the public
- financial institutions acquiring property in the course of lending
- property occupied by employees
- farmhouses
- a qualifying housing co-operative.
Where a taxpayer is seeking to purchase property within a corporate structure it is therefore important that the SDLT position is considered.
Annual Tax on Enveloped Dwellings (ATED) may also apply to companies, which is not considered further in this article.
Next Steps
If you need support with calculating the correct SDLT or help with the appropriate tax structure, do get in touch with Mark Stemp at Crowe: [email protected]
www.crowe.co.uk
*This article is for general informational purposes only. It is not intended to address your particular requirements and does not constitute legal, tax, investment, financial or other advice. Seek independent advice where required, as individual circumstances may vary.
